As euro outguns dollar, Europeans pine for francs and deutsche marks

Public support for the euro is lower than at any point since its induction in 2002.

ByMark Rice-OxleyJanuary 8, 2007

LONDON
— When Susan Paparis shops for groceries, she thinks in euros. But when Ms. Paparis, a Briton who has lived in France for almost 30 years, goes out for big-ticket items – domestic appliances, say, or a car – she still thinks in francs.

"You have to be good at [math]," she says. "You have to multiply by six and add 10 percent. Older people here still don't find euros easy. A lot of people of my generation and older would be in favor of bringing the franc back."

When the euro became real money in millions of European pockets five years ago, enthusiasm for the fledgling currency was muted. Now, as it emerges as a global medium of exchange to rival the dollar, public support for the euro is lower than at any point since its induction in 2002.

Yes, the currency has bedded down well, outgunning the dollar on currency markets, locking together 13 disparate European economies and more than 300 million people, and acting as a solid reserve – and diversifying force – for a growing number of central banks around the world. Yes, it's the perfect tender for European travelers, who can now move from Cadiz, Spain, to Helsinki, Finland, without having to visit a bureau de change.

But try telling that to Germany's 4 million unemployed, who blame the one-size-fits-all interest rate for their plight, or to Greeks, who must be adept at multiplying by 340 to get a sense of an equivalent cost in their former currency, the drachma.

According to a recent EU survey, just 48 percent of eurozone citizens think the transition from national currencies to the euro was a beneficial move, down from 59 percent five years ago. While that dissatisfaction may wear off as the continent's economy rebounds from several years of stagnation, it's unlikely that the euro will replace the dollar as the preeminent global currency anytime soon, say experts.

"The euro has some way to go yet because of the still relatively undeveloped capital markets [in Europe] compared to the US," says Adam Cole, senior currency strategist at RBC Capital Markets, an international investment bank. "Looking at the broad range of assets, the US still leads the way in terms of equity markets, derivative markets. The US is still some way ahead. The eurozone is catching up."

Complicating the euro's standing vis-à-vis the dollar is the fact that although the eurozone comprises around the same number of people as the US – 300 million, give or take – its economy remains far smaller. More disadvantageous still, the eurozone is, unlike America, a collection of economies all moving at different speeds and different cycles – but with only one interest rate to service the system.

At times, the eurozone creaks under the strain of this "one-size-fits-all" interest rate. At one moment it appears too punitive for struggling economies; this was particularly true of Germany in the early years of the euro when unemployment soared. At other times, rates appear too lax to rein in overheating economies like Ireland and Spain. The Organization for Economic Cooperation and Development (OECD) said last week that the euro had delivered less economic integration than expected.

"There is this problem for sure," says Tito Boeri, an economist from Italy, which has struggled more than most. "Italy has not been in sync with rest of [the] euro area. It is lagging behind in many respects. Its economy stagnated for four years."

One development that could greatly strengthen the euro, say experts, would be British adoption of the currency.

Dissolving the pound into the euro would bulk up the eurozone to a market of 360 million people and a GDP to rival that of the US.

But few expect it to happen.

"I can't see the UK [United Kingdom] joining," says Simon Tilford of the Centre for European Reform, a London-based think tank, adding that the Britain hasn't lost investment or trade through remaining outside the eurozone. "If you are trying to construct an argument in favor of joining, it's not that easy at the moment. The tensions in the eurozone are being brought home to people in the UK."

Adds Mr. Cole: "The UK is the only country which could make a material difference to the eurozone. But public opinion is so strongly against the UK joining, and no [political] party thinks it's realistic to turn public opinion round."

Paparis, the Briton living in Perpignan, southern France, says that the dislike of the euro among people of her generation and older in France doesn't stem only from the mathematical difficulties associated with adopting a new currency. It's also a cultural issue – one on which they perceive Britain has fared better.

"They think they have lost their identity," she explains. "A lot of people look at the Brits and think they've done well because they've still got theirs."